Landlord Expenses
When calculating whether buy-to-let is right for you, make sure you include all of the costs involved in letting out a property
Maintenance costs
These will vary depending on the property but you should budget for costs of about £270 a year, if you have insurance
Refurbishment costs
Every few years it is likely you will need to redecorate or refurbish parts of the property. For example putting in new bathroom fixtures. You should budget for these costs accordingly.
Letting Agents
If you decide to use a letting agent to find tenants should budget for a fee of around £200. If you would like the letting agent to fully manage the property for you i.e. collect rent, deal with tenants' problems and queries etc. you should budget for between 10% -15% of your annual rent.
Landlord Insurance
There are different levels of landlord insurance. Costs for landlord insurance will vary depending on where you live, the property type and how comprehensive the cover is that you're looking for. We recommend that you take out some kind of landlord insurance and it is likely that your mortgage lender will expect you to.
Empty periods
You should also allow for the property being empty for between 5% and 8% of the year, that is between tenancies or during repairs.
Buy To Let Mortgage Explained
A buy to let mortgage, UK wide, is quite different from a residential mortgage. With a residential mortgage, the repayment calculation is based on the applicant’s salary, while with a buy to let mortgage the lender will apply a rent to interest cover calculation. This simply means that the borrower has to be able to prove they can take in enough rental income from the tenant of the property to at least cover the interest on the mortgage.
Finding the best buy to let mortgage for your personal situation can prove difficult, especially if you are unsure of what exactly you should be looking for. For this reason it might be best to employ the services of a mortgage advisor who can guide you through all the complicated legalese surrounding a buy to let mortgage.
Consumer buy to let mortgages are subject to the Mortgage Credit Directive Order 2015. This legislative framework recognises a situation whereby the borrower does not take out a buy to let mortgage solely for the purpose of business. The legislation provides examples of circumstances that does constitute acting solely for the purposes of business, by way of contrast.
Consumer buy to let mortgages are not used to purchase a property that you intend to only rent out. You are considered to be acting for the purposes of business, and not as a consumer, if you already are the owner of a property that has been rented out, or if you have purchased a property previously with the intention to let it out, but neither you nor anyone related to you has ever lived there. Buy to let mortgages are not regulated by the Financial Conduct Authority in the same way that domestic residential mortgages are. This situation has advantages and disadvantages.
The Mortgage Credit Directive Order 2015 legislation offers certain protections to consumers that those acting for business purposes are unable to access. There are many risks involved in buy to let. Rental income is typically the only source of income used to repay the mortgage, so the landlord must ensure that the property is always occupied by a paying tenant. Should the property require major repairs at any point, that can cause serious problems as the costs have to come from somewhere, and the rental income will usually not be enough to cover both the mortgage repayments and the repair costs.
The deposit required for a buy to let mortgage, or a buy to let remortgage, is generally higher than the deposit required for a residential mortgage. The minimum required is usually at least 25%, and can be as high as 40%. Mortgage lenders will usually insist that the rental income per annum is a minimum of 125% of the mortgage repayments per annum. Maintenance, refurbishment and insurance costs, where applicable, should also be taken into consideration.
Anyone considering a buy to let mortgage should view the venture as a long-term investment. House prices are likely to increase over the long term, but they might fluctuate up or down, or even remain static, in the short term. There are also many potential risks involved, and these should be properly assessed too.
